Exports grow amid rising global demand.  According to preliminary figures released by the National Export Promotion Agency (Prompex), exports increased 14.4% to total US$ 3.2 billion in the first half of this year compared to the same period the year before.  Traditional exports (fishing, agriculture, mining and oil) increased 15.5%, reaching US$ 2.2 billion.  Key to the strong growth in traditional exports were fishing (+49.8%) and oil (+77.4%).  Whereas oil profited mainly from higher prices, fishing soared as a result of higher anchovy catches, one of Peru’s principal export products.  Furthermore, copper profited from increasing demand in non-Japan Asia, particularly China.  Non-traditional exports increased 12.0% spurred by textiles, which grew 27.0% in the first six months.  Nevertheless, the annual trade deficit persists and reached US$ 0.6 billion in June.  Consensus Forecast panellists expect the deficit to grow further to US$ 0.7 billion by the end of the year as imports (+12.3%) are expected to outgrow exports (+11.2%).

Mixed signals for course of economic policy.  Political violence (leading to six deaths) in the wake of president Alberto Fujimori's third term inauguration on 28 July did not raise major concerns about the possibility for increased political instability, since it was largely expected.  However, Fujimori’s inaugural speech did disappoint most observers both from a political as well as an economic viewpoint.  Instead of providing the domestic business community and international investors with fresh ideas on how to steer the economy clear of the weight of the stalled economic reform process, Fujimori implied that he would seek a more pronounced role of the state in the economy in the future.  The plans announced by the president seek to promote agricultural products and import substitution in the manufacturing sectors.  Nevertheless, Fujimori compensated for the uncertainty inherent to his speech by naming Carlos Boloña as new minster of economy.  Boloña, who replaces recently appointed Efraín Goldenberg, championed free-market policies, such as state asset sales and other reforms that drew foreign investment and returned Peru to the fold of the world's financial community, during his term as economy minister from 1991 to 1993.  However, it remains unclear whether Boloña will be given complete control over the course of economic policy as he had in the early 1990s.

Reconciliatory appointments to cabinet.  Fujimori also failed to ease concerns about his government's handling of the last elections, which were tainted by fraud allegations.  His elaborations on the strengthening of democratic institutions were generally perceived as too general and lacking the specificity necessary to dispel concerns over the potential for autocratic governance during his third 5-year term.  To allay concerns, Fujimori appointed his former opponent in the presidential elections Federico Salas as his new cabinet of chief.  While Salas has been accused by some as being a Fujimori “pawn”, his appointment should help Fujimori in reconciling the divided country and critical international observers.  Boloña, who will also serve as education minister, replaces Alberto Bustamante, who will remain in the cabinet as justice minister, legal adviser to the government and head of the committee to strengthen democracy in Peru.

Note:  The above text is an abridged version of the LatinFocus Consensus Forecast briefing on Peru.  For more details please click here.

For five-year forecasts, please click here.